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Monday, 30 October 2017

Bitcoin Price Analysis: Signs of Divergence May Point to Potential Distribution Phase

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After bouncing back and forth from $5100 to $6100, BTC-USD managed to squeeze out one more (albeit short-lived) all-time high. This article is going to present an update to the last discussion regarding the potential Wyckoff Distribution and provide a more contextualized, macro-view of the current bitcoin market. Before reading any further, I would like to emphasize the word “potential” within the context of this discussion because until the market actually reverses, this is nothing more than a potential market set-up:

Figure 1: BTC-USD, 1-HR Candles, Potential Wyckoff Distribution

When welast discussedthis potential distribution pattern, we hadn’t experienced the first Upthrust (UT) or the following Upthrust After Distribution (UTAD). Both Upthrusts represent a brute-force market test of the bitcoin demand and, as you can see, the Upthrusts were very short-lived and ultimately pulled back to more comfortable price levels.

At the time of this article, we are potentially in what is known as “Phase C” of the Wyckoff distribution. Phase C is meant to intentionally deceive the bullish retail traders into buying and to shake out unconfident shorters. The whole purpose of Phase C is to create the illusion that market wishes to push upward and resume the uptrend while the larger market players unload their liquidity onto the more bullish investors. In the Wyckoff distribution model, the UTAD is the terminal shakeout opportunity and serves to test the remaining market demand before a larger correction follows.

During yesterday’s potential UTAD, one of the top contract holders on OKCoin got liquidated for a 480,000 contract position — or, in other words: $48 MILLION dollars. Yesterday’s liquidation was the largest liquidation in OKCoin history. So, if you feel as if you can’t quite get a grasp on the market and you keep getting stopped out of your positions, just know you aren’t the only one. All of this misdirection is part of Phase C within the Wyckoff distribution model.

Figure 2: BTC-USD, 12-Hour Candles, MACD and RSI Divergence

On a more macro-view, we see clear signs of bearish divergence on both the RSI and MACD indicators. This gives us an indication that the market is struggling to squeeze out new highs and the bullish momentum is starting to die down.

Zooming out, we can see bitcoin has been confined within a fairly clean ascending channel and has well-defined support and resistance along the Fibonacci Retracement set. The channel and Fib set start from the $600s:

Figure 3: BTC-USD, 1-Day Candles, Macro Channel

One thing of note in this macro trend is dramatic decline in total volume (shown in pink) over the length of this ascending channel. The decrease in total volume shows a decrease in confidence as the price continues to climb to new highs. As the volume continues to decline, it indicates a shift toward retail investor pressure and a smaller buying influence from larger, institutional investors.

If the market begins to reverse on a macro scale, we can expect to find support along the Fibonacci Retracement values shown above. Also, on the 1-day candles, there is historic support along the 50 EMA and 200 EMA. Over the course of the last year, bitcoin has yet to successfully break below the 200 EMA (shown in red), so we can expect to see a significant level of support along the 200 EMA.

With the uncertainty surrounding the upcoming hard fork, it’s fairly difficult to anticipate how the market will behave. It’s important to keep in mind that it is entirely possible it could make further moves upward; should the market pick up bullish momentum, we can expect a test of the upper trendline of the ascending channel near the lower $7000 values.

Summary:

Bitcoin is continuing to show characteristics of a distribution phase.

On a macro-scale, Bitcoin is signs of bullish exhaustion in the form of RSI and MACD divergence.

If the market pulls back, we can expect to see support along the macro Fibonacci Retracements.

Trading and investing in digital assets like bitcoin and ether is highly speculative and comes with many risks. This analysis is for informational purposes and should not be considered investment advice. Statements and financial information on Bitcoin Magazine and BTC Media related sites do not necessarily reflect the opinion of BTC Media and should not be construed as an endorsement or recommendation to buy, sell or hold. Past performance is not necessarily indicative of future results.